The Hotel Guest Room is Headed to Extinction: Here is What’s Next

Recent data around traveler preferences and hotel occupancy paint a morbid picture for the traditional hotel guest room. STR, the data and benchmarking provider for the hotel industry, released a report earlier this month that indicates with nearly 50% confidence that the U.S. hotel industry is headed towards a recession. This was determined by an aggregation formula that includes new hotel jobs, spending on hotel improvements, as well as occupancy and average daily rate (ADR) growth across the country. These stats reflect a trend that hoteliers have been feeling for the last few years, and there has been much conversation about causes of this trend.

Is Airbnb the Culprit?

Home sharing services and hotel oversupply are major factors. This started with leisure travel and is quickly growing into business travel. Some hoteliers were able to sustain their occupancy last year, but they were forced to drop rates. This means less profit for owners. Hotels are scrambling for answers.

Airbnb has taken a lot of the blame for these trends, largely a result of its role in shaping the culture of travel and shifting guest preferences towards a more authentic, localized experience. Airbnb’s growth curve looks alarmingly like the opposite of the hotel growth curve. And Airbnb’s valuation is the best indicator. At a recent indicative valuation of $30 Billion, Airbnb is worth 65% more than Marriott and 30% more than Hilton. Shareholders of both Marriott and Hilton are confused about how these industry landmarks will turn around.

A few weeks ago, The New York Times illustrated some strategies hotel corporate groups like Marriott and Hilton are attempting, by developing more thrift-conscious, local experience–driven brands in order to replicate the Airbnb model.

Personally, my perspective is that there is an identity mismatch, and the scramble to replicate Airbnb will end up unsuccessful. So what can these brands do to reverse the downward trend?

Hotels: Stick to your Core

After spending 15 years in venture capital, the common theme I’ve found in most turnaround stories has been a return to self. When companies have been able to reconnect to their core DNA and a refreshed outlook on the reasons for their original success, they are often able to come back stronger and better.

With hotels, the answer may not be replicating their biggest competitors like Airbnb, but rather by accentuating their core differentiation. At the end of the day, hotels have everything going for them. Perfect locations, incredible service, luxury amenities, unique decor, exciting atmosphere, great food and drink — there are endless reasons why hotels have always been magical havens of experience. And in a world that is now driven by moments in time and captured through our social media, there is no limit to the thirst that millennials — and professionals of any generation — have for these types of experiences.

The question is, how hotels can repurpose themselves to deliver their unique brand of experience to today’s customers in a way that is both useful and profitable?

Gotta Make it Productive

With the emergence of technology, our biggest gains as a society are around productivity. Time, date and location are no longer obstacles to progress. The lines between work and personal time have blurred. Most young professionals today value their side hustles just as much as they value their career pursuits. Which leads us to a perpetual work cycle where young professionals define themselves by both their aspirations and their hustle.

Around this central trend, WeWork has emerged and has quickly shaped the culture of work mobility. At its core, WeWork is a hospitality company that is much more closely related to a hotel than an office building. WeWork overlays brand identity, service, decor and amenities onto the shell of a commercial real estate building. And this model has worked. WeWork’s recent valuation is nearly triple Hyatt and catching up quickly to Marriott.

It is my strong belief that work and meeting space is the hospitality industry’s next $100 Billion global opportunity. If hotels don’t act quickly, WeWork will gobble up that opportunity. It’s time for hotels to pull the beds out, install desks and accelerate their service standards and brands around workspace-hospitality. Enabled by great technology both inside and outside of the spaces, the hotels would have a distinct competitive advantage and could quickly grab market share. For hotel shareholders, this means a growth curve that looks a lot more like Airbnb and WeWork and less like the U.S. GDP.

When repurposed to workspace and meeting space, hotels provide just the right ingredients that companies are looking for to inspire, motivate and retain talent around the world. We can imagine a future where remote employees can leave their home office to check into a hotel for a collaborative video session with their team, or use the hotel meeting room to meet clients IRL.

What is amazing is that this goes beyond a solution for business travel, but it’s potential to become a local solution for all of a company’s employees. This means high frequency and repeat rates, and ultimately a much better and profitable business than traditional guest rooms.

How Can Hotels Capitalize on the Opportunity?

The way hotels will capture this massive market opportunity is a sequence of small steps. First, they would need to restructure their sales and booking process, in a centralized format, to support the workspace opportunity. Today, customers still have to call hotel sales teams to book meetings and workspace and endure a two to three day process of negotiations, contracts and finalization.

In 2016, manual booking is an unacceptable process for most corporate customers. You want me to fax what to where? I have to wait how long? Why do I need an RFP? Millennials hate the process. So do administrators. It’s a vestige of the past that must be pushed out before the industry can capture this opportunity.

Over the last few years, several of the larger hotel brands such as Starwood and Kimpton have attempted to enter the space with their own meeting room booking apps, but have ultimately retreated due to lack of adoption. Today’s customer wants to compare multiple brands and options before making a decision and the lack of industry unity around this opportunity is a key factor. The second limitation is the lack of a common interface, as it is unlikely that a single brand experience will be able to spark this new industry.

Much to their investors’ chagrin, large hotel corporate groups remain on the sidelines of this opportunity, largely due to fear or misunderstanding. Many large hotel groups are immobilized by their bureaucratic organizations, unable to move quickly and seize new opportunities to shape the future of the hospitality industry. Like most industries, the future will be spearheaded by the smart and nimble organizations that can move fast and embrace a new future.

Enter the Catalysts

The last thing hotels want is another OTA industry to emerge around this market opportunity of the future. However, the reality for hotels is that the industry will rely on some select third parties to unify all the brands, create universal standards and service norms, and most importantly, create a user experience and product that brings the companies together around this opportunity. The end goal will be a platform that corporate clients can rely on for on-demand workspace and meeting space at hospitality venues, which will emphasize their duty-of-care, service, amenities and experience offering that fit perfectly with the enterprise needs.

This is why we created Bizly. We are currently centralizing high quality hotel meeting inventory around a unified customer experience and establishing the standards of quality and consistency. By 2020, we will be serving meeting and workspace at the best hotels and restaurants in every city in the world.